Well, it’s embarrassing for me to see how far behind I have fallen with the Cash Flow statements… Back in April, I was dealing with a vacancy with Rental Property #5… As they so often say, “when it rains, it pours“. Two months later, I experienced an additional vacancy with Rental Property #4…
Unfortunately, it took an extremely long time for me to recoup the security deposit from my previous Indianapolis PM (Rental Property #4), so that really made a mess of things in regards to monthly updates…
I kept waiting, and waiting, and waiting…
Further, I experienced 3 total months of vacancy with Rental Property #4… so all the lawn-mowing, utilities, etc. bills didn’t come home to roost until months later, after the situation had stabilized and I got a new tenant in place…
So, now that we are in December, rather than going back and providing a monthly update for every month, I am going to do my best to summarize the details and put together a string of reports to give readers the full picture view (although condensed) on how things are performing.
You’ll get to see:
- My worst monthly performance.
- Typical monthly performances.
- Optimal monthly performance.
More details to follow below!
The results are presented “as is” for each month. If something breaks and I need to spend money on repairs, those charges will show up as an expense for the corresponding property. If there are no issues, no expenses are reported. So, although I do set aside a portion of the net income for vacancy and maintenance reserves (which will inevitably happen), I don’t account for them in this report.
The Worst of Times
Here’s the report for June:
This is what the “worst month” of landlording that I have ever experienced to date looks like! 2/7 vacancies, with the saving grace for cash flow being a fully occupied Rental Property #3.
As you can see above, the maintenance costs to get the unit rent-ready again can also be pretty hefty ($541.75 for Rental Property #5). It hurts even more so because the maintenance comes at a time when the unit is not generating any rent (double whammy)…
To succeed in real estate investing, the ABSOLUTELY MOST IMPORTANT THING you can do is to minimize vacancy as much as possible. This is ESPECIALLY important for landlords who own properties out-of-state, where you have to rely on others to get tasks done.
Also, the true reality of owning properties is that it is essential that a landlord maintain ample maintenance/vacancy reserves each and every month… You just never know when you’ll be needing it!
I realize the results above look TERRIBLE, and they really were dreadful… But, the one bright spot I took from all this was the fact that even in the worst of times, I still somehow managed to pull through above break-even…
Although there are no guarantees that I will never have a NEGATIVE month with my rental properties, the diversification definitely helps to dampen the blow, no doubt!
In the worst of times, I’ll consider it a win if I can manage to pull off some GREEN to the tune of $100/month in net cash flow.
The Best of Times
Here’s the report for October:
I was able to get Rental Property #5 leased up in the summer, and Rental Property #4 followed suit, with a new tenant moving in September (it dragged longer than anticipated, but I learned a lot from the experience which I will detail later in this report).
By September, we were again firing on all cylinders… The above shows what an “optimal” month looks like when all my units are leased up, everyone is paying rent, and the maintenance items are minimal.
About $2,800/month, best case scenario.
Typical Times
Here’s the report for November:
As I have mentioned before in past Cash Flow Reports, some of my tenants are Section 8, and they don’t always pay on time… The tenant in Unit #1 of Rental Property #5 eventually does get around to paying, but as is the case right now, she is delinquent for rent payment that was due back in November…
So, this is what I would call a “typical” month where my market rate tenants all pay but I’m still chasing after rent collection from a Section 8 tenant…
About $2,400/month in net cash flow.
Here’s the report for December:
To err on the side of caution, I would say December’s report is a better reflection of the true state of my rental properties… Here we have some missing rent payments along with some maintenance items and a HEFTY utilities bill (I am responsible for paying water for my duplex units; Rental Property #3 and #5).
Total cash flow of $2,000/month is basically where my target lies…
Rental Property #1: Bay Area
The tenant’s lease expired this past September, but ultimately I decided not to increase rents… Other real estate investors may think I’m crazy, or completely stupid, but I have my own reasons…
The family that lives in this unit does not generate high income… They essentially live paycheck to paycheck, but they have always been outstanding tenants… These fine folks: pay on time, handle their own maintenance issues, and for the most part, leave me alone in peace… since 2012 when I first won the property.
I think there is something to be said for that…
Further, they have two young kids who they are trying to put through school… And from my own background of having to work 4 years in high school, I know how tough times can be when your income doesn’t grow at the rate of inflation to keep up with everything, especially rent…
$2,130/month is chump change for a 3 bedroom unit in the Bay Area… Market rate goes for $2,600/month…
So, as an investor, I realize that I am hurting myself here…
But I feel good inside, as cheesy as that sounds… And I can’t seem to put a price tag on that…
Ultimately, I made out like a bandit by winning this unit… Right now, I’m not desperate for the cash either, so I decided to keep rents at the same rate for another year…
Rental Property #2: Bay Area
The tenant who lives here has been in place since May 2013. He is excellent and always pays on time. This time around, I elected to increase rents by $200 back in June.
Market rate is about $2,700/month, so my current rate of $2,350/month is well below market.
Again…
But this unit is located in a fabulous neighborhood. When it comes time to declare early FI, I have no worries about being able to get this unit back up to market rate.
That will boost cash flow TREMENDOUSLY!
Rental Property #3: Chicago
I have the same two tenants as in previous reports — one market rate, and one Section 8. They are both great and always pay their rent, although not always on time.
I have no complaints here, and I hope both tenants stick around for a long time!
Rental Property #4: Indianapolis
My previous tenant paid on time but she left the home in pretty bad shape… The PM and I had to chase down my previous PM to locate the security deposit (apparently they never transferred it over).
This really made a mess of things… Further, it took a lot longer to lease out this unit then I would have liked…
Unfortunately, we weren’t able to obtain the previous $1,075/month rent, and had to lower it to $995/month in order to attract high quality tenants.
Lesson learned… When it comes to vacancy, don’t mess around… Quite frankly, vacancy is the worst experience possible with landlording; it absolutely destroys cash flow…
I would rather lose out on $100/month and get an OUTSTANDING tenant in return than to nitpick for higher rents and have to go through months of vacancy again…
And this time around, unlike before, I have a direct relationship with the tenant (we exchange texts every now and then)… No more messing around, I want somebody good in place for a LONG TIME!
So far, from what I can tell, this family is terrific! They are extremely polite, respectful, and they pay before the 1st each month.
Since this rental property is paid off, as long as I can keep it occupied, it will be a cash cow for me.
Rental Property #5: Chicago
The new tenant here is also market rate, so between Rental Property #3 and #5, I have a 50/50 split between market rate and Section 8.
The Section 8 tenant has been in place almost two years now, and although she pays late, she eventually gets around to paying off her balance.
So far, the new market tenant has been punctual with rent payment of $1,250/month.
We’ll see how things go…
Summary
Point blank, vacancy hurts a lot! My struggles this year with rental properties are 100% attributed to losing months of rental income and having to spend a ton of money on rent-ready repairs and lease-up fees… Although these bumps in the road have been painful, I’ve learned that I have to be way more selective with my out-of-state tenants so that they can match the quality that I have here in the Bay Area… Because if I can manage to pull that feat off, I should be able to go a few years (or more) between vacancies… This will do WONDERS in terms of boosting the monthly cash flow numbers…
What’s my strategy?
Screen tenants myself. Charge below market rent. Interact with tenants and give back to show my appreciation. Address all questions, concerns, and repair items ASAP.
If you want respect, you’ve got to reciprocate respect.
It’s well worth the effort.
The “worst of times” moments produce about $100/month in cash flow. The “best of times” gets me around $2,800/month. The “regular times” vary between $2,000/month and $2,400/month.
For readers who are new to this journey, please note that my cash flow has diminished this year because I executed two separate cash out refis (Rental Property #1 and Rental Property #2), which allowed me the opportunity to pull out ~$200,000 in funds in exchange for a larger monthly mortgage payment.
And as readers are well aware, I have some BIG plans for that $200,000! 
So, at this point, I guess the fundamental question to ask is this:
“Do I have enough reliable cash flow to declare early FI and retire FOREVER?”
I’m a conservative guy, so I would say…
No.
If we extrapolate these numbers out for a full year… throwing out the “best of times” results.
Let’s say we average 1/3 our time in a given year between:
$100/month
$2,000/month
$2,400/month
$1,500/month.
My original early FI goal…
Would that work stateside? No way.
Overseas? Maybe…
But my own plan is to go overseas for a few years and figure out a way to live off of $1,000/month… Using my current conservative cash flow numbers, I should have a buffer of about $500/month…
Of course, being conservative, those numbers still aren’t good enough for me…
So, we’ll need to bring in some reinforcements…
I’ve currently got about $200,000 invested in gold mining stocks and an additional ~$120,000 or so in the bank… Adding in those additional buffers, do I have enough to call it quits tomorrow?
Still no…
No?
In addition to the cash flow and cash buffers, my plan for pretirement (let’s not call it early FI just yet) is to also find a way to work some side hustles online to help generate $50/day, or $250/week, or $1,000/month.
In pretirement, I would still like to figure out a way to save and invest… Some habits die hard!
Am I ready for pretirement?
Yes, I strongly believe that pretirement is just around the corner for me… Just got a few more tasks to wrap up first…
Stay tuned and thanks for reading!
2015 Cash Flow Summary:
2014 Cash Flow Summary:
2013 Cash Flow Summary:
